Investing in US Savings Bonds and US Treasuries – Key Points

Key Points Regarding US Savings Bonds:

US Savings Bonds comprise the following: EE Bonds, HH Bonds (no longer issued as of 8/31/04) and I bonds (inflation protection)

EE & I bond interest may be excluded from federal income tax if used for qualified higher education (college tuition) in same year redeemed

Interest earned on EE or I bonds is exempt from state & local income tax. This interest is, however, taxable for federal purposes

These bonds accrue/pay interest for 30 years, until maturity

EE Bonds issued before 1993 are paying 4.16% interest

Minors can purchase US Savings Bonds

No federal tax is due until maturity of US Savings Bonds, unless you elect to accrue the interest each year. This election then applies to ALL US Savings Bonds you own

EE Bonds are purchased at 50% of par value and the maximum purchases you are allowed in 1 year = $ 10,000 par (paper) + $ 10,000 par (electronic), for a total of $ 20,000 par

Series HH bonds pay interest semi-annually
An individual’s ability to purchase EE bonds is limited if their income exceeds $ 104,900 (married) or $ 69,950 (single or head of household), $ 0 (married filing separately)

Savings bonds are not considered “Treasuries”. They represent their own separate category

Four Types of Treasuries:
TIPS = inflation-indexed bonds issued by the Treasury. Principal is adjusted to CPI. Maturities = 5, 10 & 20 years

Treasury Bonds = maturity of 20-30 years. Pays interest every 6 months

Treasury Notes mature in 2-10 years. Pays interest every 6 months

Treasury Bills mature in 1 year or less. Sold at discount. Maturities = 28 days, 91 days, 182 days & 364 days

STRIPS are not issued by Treasury.

They are created for sale in the secondary market by investment banks and brokerage firms. Interest & principal are separated and sold in secondary market as individual debt obligations. The federal government does register STRIPS in its book-entry system. STRIPS can only be bought through a broker. They are resold in form of zero coupon bonds and pay no interest until maturity.

China currently holds $ 802 billion in US Treasuries. Japan is next with $ 677 billion. UK holds $ 164 billion

If China were to stop buying US Treasuries, the US economy would collapse.

Tom is a Certified Public Accountant, a Certified Financial Planner, CLTC (Certified Long-Term Care) and President of Cerefice & Company, the largest CPA firm in Rahway, New Jersey. Tom works with clients helping them manage their money, retirement planning, college savings, life insurance needs, IRAs and qualified plan rollovers with an eye towards maximizing tax benefits and minimizing taxes. Tom is founder of the Rich Habits Institute and author of “Rich Habits”.

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